Goldman to Expand Japan REIT to 60 Billion Yen as Demand Rises

By Katsuyo Kuwako and Kathleen Chu -
Mar 11, 2014

Goldman Sachs Group Inc. (GS) plans to
expand its private real estate investment trust in Japan to 60
billion yen ($583 million) by the end of March amid rising
demand to invest in the nation’s real estate market.

The REIT will acquire two office buildings in Tokyo and
Fukuoka, on the southern island of Kyushu, said Hiroyasu
Kaizuka, head of the real estate investment department at
Goldman Sachs Asset Management Co. in Tokyo. The REIT, which
started in August 2012 with 30 billion yen, plans to add about 4
billion yen of properties by the end of June, he said.

Goldman Sachs, the first non-Japanese company to start a
private REIT, is targeting 100 billion yen of properties in
three years from inception. Property transactions in Japan may
rise as much as 30 percent to about 5 trillion yen this year
from 4 trillion yen in 2013, according to an estimate by
brokerage Jones Lang LaSalle Inc. (JLL)

“The market condition has turned around so quickly that
the yield has become tight,” said Kaizuka in an interview in
Tokyo. “We won’t consider buying properties that will hurt the
return.”

Office buildings represent more than 90 percent of total
properties, Kaizuka said. Real estate in Tokyo accounts for
90 percent of the REIT, while the rest is in Fukuoka, he said.

The capitalization rate, a measure of investment yield, for
office buildings in Tokyo fell to 4.91 percent in January from
5.12 percent a year earlier, according to New York-based Real
Capital Analytics Inc. A drop in the cap rate, which is a
property’s net income divided by the purchase price, usually
signals an increase in real estate prices.

The REIT will consider buying more residential and
commercial properties in other metropolitan cities if the yield
gets too low in Tokyo, Kaizuka said, without naming the cities.